Seismic Shift of “Buy Now Pay Later” for Brands

By Jacqueline Mattia, Senior Director/Practice Lead, Financial Services and Travel & Hospitality at Movable Ink

Despite the sudden boom of “Buy Now, Pay Later” gaining mainstream attention, this concept isn’t new. Installment plans have been offered within the financial industry for years. BNPL is a similar product with a more current label – a modernized version of layaway, which retailers have offered since the 1930s.

However, many experts are now anticipating a seismic shift in the industry; as Insider Intelligence estimates, BNPL will account for $680 billion in sales in 2025 — up from $285 billion in 2018. And there’s a reason behind its growth. With trends such as digital acceleration, eCommerce adoption, and a younger demographic of shoppers driving up usage, new brands focused specifically on BNPL are entering the market in a frenzy. What these organizations understand is that the digital-first lifestyle among this target audience is ripe with opportunities for innovation and transformation. Currently, 56% of consumers globally have used BNPL, and 60% say they are likely to use it over the next six to 12 months—making it a critical part of the customer purchase journey. Moreover, these new financial players are both well-funded and well-equipped to significantly impact the sector.

Here’s why brands must examine the value of incorporating BNPL into their payment options:

Rising Inflation Calls for Increased Spending Power

In January 2022, the cost of goods reached a 40 year high. This included hikes in the cost of essentials like food, gas and cars as well as furniture which rose by nearly 17% in cost in 2022, clothing and appliances. During the 2021 holiday season, Credit Karma found that 43% of shoppers felt financially stressed due to rising costs. BNPL offers consumers an additional form of spending power to cover the cost of purchases over time.

The Preferred Payment Option for Gen Z and Millenials

According to eMarketer, 44% of U.S. consumers now prefer to use BNPL services instead of credit cards. Spending on BNPL in the U.S. alone has increased by 230% in the last year and continued through the past holiday shopping season. This is largely driven by millennials and Gen Z, which account for nearly 75% of BNPL users in the U.S.

BNPL has become a popular option for younger consumers such as Gen Z who may have less cash flow. 45% of US BNPL users say they use it to cover items that don’t fit into their budget and interest in BNPL is significantly higher among consumers who are living paycheck-to-paycheck. Increasing aversion to interest fueled debt felt by millennials makes BNPL that offer interest-free payments over time extremely appealing.

As financial services brands gear up for an increasing number of Gen Z customers and growing spend by Millenials, they are also future-proofing their digital marketing strategies.

More Customers, Higher Conversion, Larger Purchases

For both retailers and financial institutions, especially those with younger customer bases, BNPL is a way to gain both incremental customers and sales, as well as higher average purchase sizes and increased frequency of purchases.

Retailers such as Macy’s attribute increased growth in new customers, especially those under 40, to its partnership with Klarna. Once acquired, these customers tend to be more profitable. BNPL financing has been shown to increase retail conversion rates by 20-30% and raise the average purchase size by 30-50%, according to RBC Capital Markets.

A New Way for Banks to Build Customer Loyalty

For banks and financial institutions, adding BNPL as a payment method allows them to become even stickier by offering a highly desirable product and creating multi-relationship customers. A recent study by PYMTS found that over 54% of Gen Z and Millenials are interested in using BNPL products issued by their banks, and over 70% of current BNPL users are interested in using bank-issued BNPLs.

Key segments that are using or interested in using BNPL, such as Gen Z and Millenials, are digitally savvy customers; for retail and financial brands to continue driving successful adoption and usage of BNPL with these audiences, a seamless, cross-channel experience is crucial. To create a winning digital strategy for their BNPL programs, brands should keep in mind:

Personalization Backed by Real-Time Data is Essential

Having grown up with access to highly personalized digital platforms and products like social media apps, Amazon and Apple, Gen Z expects personalization from brands. 57% of Gen Z consumers say they believe in personalization and want websites to intuitively know what they want, while 45% say they will leave a site if it can’t predict what they like, want, or need. Effective digital personalization is dependent on a brand’s ability to access and action off of customer data in real-time. To do this, brands should look to APIs as the primary source of customer data for marketing personalization. Data that is broadly segmented or latent won’t be able to provide the relevancy or accuracy that segments like Gen Z expect. Examples of API-backed personalization within BNPL programs include 1-1 product recommendations based on a customer’s most recent shopping behavior, or the most recent transactions a customer has made with their credit card that they can pay off using a BNPL like product and save on interest.

Prioritize Transparency and Financial Wellness

Currently, 31% of BNPL users have made a late payment or incurred a fee, resulting in a negative user experience that could impact their future behavior. Therefore, providing clarity on payment terms is essential. In addition to providing easy access to customer support and payment tools, brands can support their customers’ financial wellness by sending personalized communications to customers, including email and mobile alerts reminding customers of upcoming and past payments and their balances across their BNPL purchases.

Double Down on Customer Insights and Zero Party Data

As a newer financial product, BNPL providers need to rapidly learn as much about their customers as possible to grow them in the near term and craft a longer-term roadmap for retention and loyalty. Collecting and actioning on zero-party data, which is data that the customer volunteers to a brand, will play a major role in this as data deprecation lessens brands’ ability to use third-party data. An effective method of collecting zero-party data is to use live polls, which engage customers to provide survey responses while being able to see how other customers are responding, driving engagement through social proof. This data can then be used to personalize marketing campaigns, build richer customer profiles and personalize app experiences.

The growth of BNPL demonstrates that customers won’t wait for the historically slow pace of innovation within the financial services industry. By putting customer needs first, both at the point of sale and throughout the entire marketing journey, financial services marketers can offer customers exactly what they’re looking for while building and maintaining loyalty.